The Malta Independent
6th August 2004
Our culture takes division right down to the village festa. We often find difficulty to agree on yesterday`s weather let alone on tomorrow`s news. The front pages of In-Nazzjon and L-Orizzont suggest that half the population lives a very different reality from the other half.
It is therefore quite curious that we have achieved broad agreement on the need to re-invent ourselves economically by forging a social pact. Whilst the Opposition is not directly involved in MCESD discussions on the social pact, it has announced plans to publish an economic regeneration plan which cannot but present the broad objectives of the social pact.
The need to formulate a social pact has become like a broken record. Everyone seems to agree that we need it but no one has any clear ideas on how to build a consensus round putting it in practice. Events of this week have shown that parties who are expected to overcome themselves and reach consensus on the social pact, could not even honour a commitment not to communicate with the Press except through the Chairman of the MCESD.
A social pact involves acceptance that the country has been living a lie.` Our living beyond our means has been financed through debt not earnings.` Chronic annual fiscal deficit and rapid accumulation of public debt could, unless halted, threaten our financial stability and lock us out of any prospect of joining the Euro single currency within this decade.
A social pact means rolling back the excesses and making the country regain its financial sanity and international competitiveness by taking back our general standard of living to levels which can sustain economic growth through attraction of fresh investment. Failure to do so will mean that we will gradually lose what we have turning low growth into outright contraction.` It is as serious as that.
The task of achieving the social pact is compounded by the fact that the government that is trying to broker it, is in effect the culprit as to why a social pact has become indispensable to get ourselves out of the hole. The government put us in the hole in the first place!
Government`s economic mismanagement, often going for the short term politically convenient but economically expensive solutions, has produced the dubious triple crown of chronic deficit and debt, slow growth depending on government`s own unsustainable expenditure, and a rate of inflation superior to that of our competitors. Unemployment has been kept respectable only because it is hidden through inefficient under-employment in the public sector.
This basically means that government has no further tools with which to manage the economy. We have exhausted our debt capacity and quite apart from the obligations to get us fiscally in shape for the Euro, we just cannot continue to borrow faster than the rate of growth of the economy.
Expenditure control is easy to say but very hard to implement within the limits of what is politically possible and socially acceptable. Expenditure improvement in absolute terms is almost impossible and at best government should aim to achieve expenditure control in relative terms to the GDP but only over a medium to long term time span.
Which basically means that the social pact consensus for restructuring and re-acquiring international competitiveness critically depends on achieving a high rate of economic growth based on a sustainable platform of private sector investment, domestic as much as foreign.
Trying to address the fiscal deficit by raising taxes is bound to be counter-productive in terms of economic growth.` Fiscal policy has become a sterile tool of economic policy and monetary policy is as good to generate demand and investment as `pushing on a string` (Keynes). In any case monetary policy is largely out of our control once interest rates and capital movement controls have been liberalised.
Only exchange rate policy is left to restore competitiveness as a basis for a social pact agreement and government has boxed itself in a corner by pledging not to use it even though Real Rate of Exchange calculations show that the current level of the Maltese Lira is 10% and growing less competitive than it was in 1995.
How may I ask are we going to regain international competitiveness By hope By prayer` Will the unions accept to be placed in the silly situation were they are forced to accept private sector demands for wage/benefits cuts whilst public sector employees continue to burn up resources at leisure. How can government plan to avoid reducing its workforce, not even through natural wastage, whilst putting at risk thousands and thousands of private sector employees whose job is on the line as the global economy and our economic mismanagement` is forcing their employers to consider re-locating? For pubic sector employees there is no problem, government cannot re-locate!
Do we want a broken record or a social pact with real solutions?
6th August 2004
Our culture takes division right down to the village festa. We often find difficulty to agree on yesterday`s weather let alone on tomorrow`s news. The front pages of In-Nazzjon and L-Orizzont suggest that half the population lives a very different reality from the other half.
It is therefore quite curious that we have achieved broad agreement on the need to re-invent ourselves economically by forging a social pact. Whilst the Opposition is not directly involved in MCESD discussions on the social pact, it has announced plans to publish an economic regeneration plan which cannot but present the broad objectives of the social pact.
The need to formulate a social pact has become like a broken record. Everyone seems to agree that we need it but no one has any clear ideas on how to build a consensus round putting it in practice. Events of this week have shown that parties who are expected to overcome themselves and reach consensus on the social pact, could not even honour a commitment not to communicate with the Press except through the Chairman of the MCESD.
A social pact involves acceptance that the country has been living a lie.` Our living beyond our means has been financed through debt not earnings.` Chronic annual fiscal deficit and rapid accumulation of public debt could, unless halted, threaten our financial stability and lock us out of any prospect of joining the Euro single currency within this decade.
A social pact means rolling back the excesses and making the country regain its financial sanity and international competitiveness by taking back our general standard of living to levels which can sustain economic growth through attraction of fresh investment. Failure to do so will mean that we will gradually lose what we have turning low growth into outright contraction.` It is as serious as that.
The task of achieving the social pact is compounded by the fact that the government that is trying to broker it, is in effect the culprit as to why a social pact has become indispensable to get ourselves out of the hole. The government put us in the hole in the first place!
Government`s economic mismanagement, often going for the short term politically convenient but economically expensive solutions, has produced the dubious triple crown of chronic deficit and debt, slow growth depending on government`s own unsustainable expenditure, and a rate of inflation superior to that of our competitors. Unemployment has been kept respectable only because it is hidden through inefficient under-employment in the public sector.
This basically means that government has no further tools with which to manage the economy. We have exhausted our debt capacity and quite apart from the obligations to get us fiscally in shape for the Euro, we just cannot continue to borrow faster than the rate of growth of the economy.
Expenditure control is easy to say but very hard to implement within the limits of what is politically possible and socially acceptable. Expenditure improvement in absolute terms is almost impossible and at best government should aim to achieve expenditure control in relative terms to the GDP but only over a medium to long term time span.
Which basically means that the social pact consensus for restructuring and re-acquiring international competitiveness critically depends on achieving a high rate of economic growth based on a sustainable platform of private sector investment, domestic as much as foreign.
Trying to address the fiscal deficit by raising taxes is bound to be counter-productive in terms of economic growth.` Fiscal policy has become a sterile tool of economic policy and monetary policy is as good to generate demand and investment as `pushing on a string` (Keynes). In any case monetary policy is largely out of our control once interest rates and capital movement controls have been liberalised.
Only exchange rate policy is left to restore competitiveness as a basis for a social pact agreement and government has boxed itself in a corner by pledging not to use it even though Real Rate of Exchange calculations show that the current level of the Maltese Lira is 10% and growing less competitive than it was in 1995.
How may I ask are we going to regain international competitiveness By hope By prayer` Will the unions accept to be placed in the silly situation were they are forced to accept private sector demands for wage/benefits cuts whilst public sector employees continue to burn up resources at leisure. How can government plan to avoid reducing its workforce, not even through natural wastage, whilst putting at risk thousands and thousands of private sector employees whose job is on the line as the global economy and our economic mismanagement` is forcing their employers to consider re-locating? For pubic sector employees there is no problem, government cannot re-locate!
Do we want a broken record or a social pact with real solutions?
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